Bull vs Bear Market: Whats The Difference And How To Invest

A financial market which is characterised by a consistent fall in the prices of securities is called a bear market. In this market, pessimism is prevalent, and the investors take a short position, i.e. due to the anticipation of loss by holding them, securities are sold by the investors. In the bear market, stock trading declines, returns are low, investor confidence is low, and often accompanied by the recession in the economy. Growth in gross domestic product, the unemployment rate, and inflation are economic indicators that are crucial in shaping investor sentiment and market trends. Bull markets tend to last longer than bear markets, largely because stock prices generally rise over time. The median duration of a bear market is 19 months (less than 2 years), with a median decline of 33%, although their length can range from 1 month to as long as 113 months (nearly 9.5 years).

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• At the beginning of the period from Jan 2000 till May 2003 and after that from September 2010 till September 2013, the markets did not show any trend.
• While the NBER recognizes recessions an average of eight months into the recession, the S&P 500 anticipated these recessions by an average of seven months, Stovall says.
• The longest bull market occurred just after the Great Recession, starting in 2009 and running through 2020.
• Bear markets tend to be shorter than bull markets, lasting about 10 to 12 months on average in the S&P 500.

Rising GDP denotes a bull market, while falling GDP correlates with a bear market. GDP increases when companies’ revenues increase and employee pay rises, which enables increased consumer spending. GDP decreases when companies’ sales are sluggish and wages forex brokers reviews and ratings – best brokers are stagnant or declining. It’s impossible to know exactly when a bull market will start, but one way for investors to prepare for the next one is to keep buying high-quality stocks, even when they are falling. But this lousy performance might be considered “bearish” over a much shorter period, such as one quarter.

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While these bear markets cause pain across the economy, the trend for stocks overall has been to improve over time. Since its inception, the returns of the S&P 500 have only continued to grow. Thus, a bull market is for a period of rising prices, and a bear market is for when prices are declining.

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Bull markets tend to be longer than bear markets, although the duration can vary. Using the S&P 500 as a benchmark, since 1942, the average bull market lasted 4.2 years while the average bear market lasted 11.1 months. The average cumulative return of the bull markets was 148.9% and the average cumulative loss of the bear markets was -31.7%. Since 1942, there have been a total of 16 bull markets and 15 bear markets. Investing involves buying low and selling high, but it is impossible to predict market highs and lows. You may buy a depressed asset in a bear market only to watch the price fall even further.

During this period, the Dow Jones fell sharply from all-time highs close to 30,000 to lows below 19,000 in a matter of weeks. Nonetheless, in a bearish market, the liquidity dries up, and the investments made during a bullish scenario are either sold, preventing further downsides or held back. You see bull markets and asset bubbles occurring with stocks and other investments such as bonds, commodities, and housing.

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In other words, many investors wish computer vision libraries to buy securities, but few are willing to sell them. As a result, share prices will rise as investors compete to obtain available equity. On the contrary, the economy in a bearish market will either fall or not grow at all.

We also offer real-time stock alerts for those that want to follow our options trades. You have the option to trade stocks instead of going the options trading route if you wish. However, two that come to mind would be a strong economy and high employment levels.

Our watch lists and alert signals are great for your trading education and learning experience. The simple moving average formula can be used as support and resistance and buy and sell signals. Our evaluations and opinions are not influenced by our advertising relationships, but we may earn a commission from our partners’ links. This content fxopen review is created by TIME Stamped, under TIME’s direction and produced in accordance with TIME’s editorial guidelines and overseen by TIME’s editorial staff. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.

The longest bull market in history started in 2009 and extended through 2020. The start of this bull market was on the heels of a severe bear market tied to the financial crisis of 2007–08. Growth stocks are companies that typically have high growth potential and may have a high price-to-earnings ratio to account for that future expected growth. Bull markets can be favorable to growth stocks, as strong investor demand and economic conditions can help sustain the rapid pace of growth these stocks rely on.